I would appreciate advice on my personal & retirement investing. I have not made any stock trades since the 2008 market correction. I continued to make maximum contributions to my 401(k) and kept the bulk of money in cash & the Vanguard Index 500. I pretty much avoided thinking about investing due to the anxiety of selecting assets.

Since December 1, 2010, I’ve started to re-allocate funds. I attended a lecture by Yale's Chief Investment Officer David Swensen a few years ago. I googled Swensen’s asset allocation & Vanguard, am reading his book “Unconventional Success” and in the last month have tried to create a Vanguard-based portfolio which has his recommended allocations.

I've consolidated assets and currently have my portfolio in a Vanguard Individual, Vanguard Roth, etrade stock, and personal checking accounts.

New annual Contributions available
401(k) = Net around $7000-8000 (Small business 401(k) with no matching available, and I max contributions at 15k but get $7000-8000 back each year in excess contributions based on low participation of lower salaried employees vs. highly compensated employees)
Taxable new annual contributions = greater than 50k

Questions:
1. How should I re-allocate the Vanguard Individual Taxable and Vanguard Roth to get maximum tax advantages? Should the Roth be bond-free and heavy in stocks that give dividends? Should the Individual Taxable accounts then be bond-heavy?
2. Should I liquidate the etrade account and put into Vanguard Taxable or other account?
3. How much cash do I need?
4. ING 401(k) - Is the 85% ING 2045 asset allocation + 15% bonds mix okay or should I build my own asset mix? Should I go 100% in the ING 2045 asset allocation?
5. I have no kids but hope to get married one-day. Should I start investing in a 529 plan?
6. Regarding the Swensen model - 70% stocks / 30% bonds - Should I have less bonds based on my age?

I appreciate your time and effort. I wish to benefit from the great advice on this forum.

Thanks again!

Last edited by bzcti on Sun Dec 26, 2010 6:31 pm, edited 10 times in total.

You have to admit to yourself that you will lose money. You have finally decided to change your asset allocation and it appears the you've gone from "avoided thinking" to "buying stocks at the top".

It would be good to see a post by you that basically said, "I'm happy to lose up to 25% of my portfolio in the short run in order to make money in the long run."

You may also ask, "Why did livesoft dump on me of all days like today?" The answer is that you used the word "anxiety", so you have to get past that and lose your money before you can progress further.

I admire the effort and clearity that went into your post and I'd like to respond when I have more time. In your 39% income tax bracket, tax efficiency is extremely important. Please read about constructing a tax-efficient portfolio here:

You are not very tax efficient at the moment. You do not want to be holding bond funds or REITs in your taxable accounts. As you don't have any TIPS or REIT options available in your 401k I would recommend that you reduce the allocation to these funds as there isn't space for them in the current desired amounts.

I would sell the individual stocks in the e-trade account and move the money to your Vanguard taxable account.

1. How should I re-allocate the Vanguard Individual Taxable and Vanguard Roth to get maximum tax advantages? Should the Roth be bond-free and heavy in stocks that give dividends? Should the Individual Taxable accounts then be bond-heavy?

You have it backwards as the WIKI link explains. Bonds belong in tax-advantaged accounts. This is because nearly all their income is taxed each year at your higest tax rate. Tax-efficient stocks, on the other hand, achieve most of their income from capital gains which is deferred until withdrawn--and then at a much lower capital-gain rate.

2. Should I liquidate the etrade account and put into Vanguard Taxable or other account?

Yes. You are not going to manage individual stocks better than a professional fund manager--and they (on average) can't outperform their benchmark index. Get out now (before year-end) and enjoy the tax-loss benefit while it's available. Wait, and you could be "locked-in" forever.

3. How much (low return) cash do I need?

Probably much less than you think. You have stock funds in your taxable account which can be turned into cash quickly without penalty and at low capital gain rates. You probably have credit cards, bank loans, etc., available if necessary.

Our "cash" is in a bank checking account and a small money market account. The m.m. account is for contributions, withdrawals, rebalancing, and because we run every portfolio transaction through our m.m. account, our m.m. statement serves as a record for all necessary tax or other transaction information.

I would try not use a fund-of-funds in a portfolio containing both taxable a tax-advantaged accounts. Either its stocks or bonds will be in the wrong type of account. A fund-of-funds makes it difficult to understand and control (rebalance) your asset allocation. Sometimes it is necessary to use a fund of funds in a portfolio which may explain Sam using the ING Index Solution fund. Future contributions should allow you to eventually exchange to an individual stock or bond fund.

5. I have no kids but hope to get married one-day. Should I start investing in a 529 plan?

In my opinion, no. The future is uncertain. Your money is tied-up and if you don't use the 529 funds for college, you will suffer a penalty.

The earnings portion of money withdrawn from a 529 plan that is not spent on eligible college expenses will be subject to income tax and an additional 10% federal tax penalty, and the possibility of a recapture of any state tax deductions or credits taken.

6. Regarding the Swensen model - 70% stocks / 30% bonds - Should I have less bonds based on my age?

Your stock/bond ratio is your most important portfolio decision. It depends upon your goals, risk-tolerance, time-frame and personal financial situation. Only you know this.

You gave a 70% stock/30% bond allocation as your desired allocation. This is in the ball-park for a 37 year old investor. Vanguard has this Investor Questionnaire designed to help you make a decision. I hope it helps:

Regarding contributions going forwards, it looks like you're going to be above the AGI limit for contributing to a traditional or Roth IRA so you should look into contributing to a non-tax-deductible IRA (and then converting it to a Roth).

For the $7-8k new contributions in the 401k, all should go to the PIMCO bond fund. Contributions to a non-tax-deductible IRA should be all in TIPS ($5k). The remaining taxable should be split according to your equity split (64% to total stock market, 21% to total international, 15% to emerging market). This will lead to a slight underfunding of bonds but you can make up for this by switching the large-cap fund in the 401k over to PIMCO as time goes on.

Just a slight modification to my earlier suggestion, as I just realized that total international has about 25% emerging markets in it so my earlier suggestion is overweight in emerging markets compared to your desired allocation. To take this into account:

The federal student loans have a built-in death benefit and disability benefit. ie. if I die it does not go against my estate and if I become disabled or unemployed there are ways to defer payment.

Plus aren't there years when I would expect to earn more than 9.195% on an annual basis with a balanced asset portfolio?

Over how many years should I pay off the balance then? I have 20 years left.

I'm not following the 9% calculation.

The life insurance part of the student loans is probably worth less than
a $200 per year. Besides, you're single, are you all that worried about
an estate?

There may be some years when a balanced portfolio will return 9%. But
it needs to return that every year you have the loan. That's not going
to happen. Many would argue that 100% stocks won't return 9% every
year.

You should really compare your debt to your cash/bond holdings.
You are sitting on cash that's earning effectively 0% return and you're
paying interest at 5.75%.
Some argue that debt is like a negative bond. This would make
your portfolio way more stock heavy than you think.

Others have pointed out your porfolio is very tax inefficient. You are
making it more so by not paying off the debt. Since you're not paying
off the debt, your porfolio "appears" larger than it really is which leaves
you with not enough room in your tax friendly accounts to hold your
tax inefficient asset classes. If you paid off the debt, your portfolio would
be smaller (your net worth would be the same) and you would effectively
have more room in your IRA/401k because they become a larger
percentage of your portfolio.

I'd pay off the student loans in a heartbeat.

Some would argue this debt reduction should also include paying off
your mortgage.

The etrade stocks with a loss should be sold this year and the stocks with
a gain should be sold after the first of the year. You get a 3k reduction
against your income at your marginal rate this year and will only have to
pay 15% CG rate on the net gains next year.

First, I also think you should pay off the student loan. It is a guaranteed 5.575% return. There is no way you can guarantee such a return any other way. If your loan were at 2%, it might be OK to drag it out. Wiki article link: Paying down loans versus investing

Plus aren't there years when I would expect to earn more than 9.195% on an annual basis with a balanced asset portfolio?

Possibly, but fewer than in the past. However, there are also MANY years when you would expect less, perhaps much less, than 9.195%. In fact, if you've been paying on this loan for the last decade or so, you've been paying out over 5% in interest and bringing in squat on your investments. Just pay it off.

Since your portfolio is going to be so top-heavy on the taxable side, you can't really do Swensen. That's because 45% of the portfolio (blue arrows below) need to be in a tax-advantaged location. You don't have that much tax-advantaged space and what you do have does not offer what you want. By that, I mean your 401k does not offer the funds indicated by the blue arrows below.

Sam's last idea is as close as you are going to get probability. It's a good idea and you should give it strong consideration. If, however, you decide to take $90k out for the loans, everything will need to be recalculated.

The other option is just not contribute to taxable for the next 2 years and pay the loan off with that.

About IRA. You make too much money to deduct your IRA contributions. You can do the back door Roth contribution that is now allowed for high wage earners. By this I mean contribute $5k to a non-deductible traditional IRA and immediately convert it to Roth IRA. This is a good idea and you should definitely do it in my opinion. It is not much, but it give you $5k a year more in tax-advantaged space. You could put the money in taxable, but then it would not get tax-free growth. Seems like a no-brainer to me. Use form 8606 for the contribution and the conversion and keep the paperwork as there is a 5 year time period during which you cannot get to the conversion money (without a penalty).

Lastly, you indicated you intend to liquidate your e-trade account (loss of $3100) tomorrow. Not so fast - you need to liquidate that Vanguard account at the same time (actually, in the same year) so you can write off your $660 gain there. Remember you don't want to sell EVERYthing at VG. Compute your losses and gains considering only what you want to sell before you actually hit the "sell" button. If you sell too much of a particular fund, you can't buy it back a few days later - well you can buy it back, but that would be a wash sale which would prevent your taking the loss of that fund off your taxes.

If all this did not make sense, just ask. (PS. Keep Vanguard's frequent trading rules in mind too.)

1. I followed the advice and have made the numerous changes to the Vanguard taxable, Vanguard Roth, and ING 401(k). I'll liquidate the etrade account and make the necessary adjustments to the asset allocation.

2. I had to pay an early redemption fee on the REIT in the Vanguard taxable as I had the money in there less than a month (though I think the 1-month REIT gain will wash out the fees).

3. I will continue to buy the nondeductible traditional IRA and convert to the the Roth IRA. (I did this in 2007-2009 & converted to the Roth a few weeks ago).

4. Regarding the student loans --- growing up modestly where "cash is king" I avoided paying this down early. I'll accelerate and hopefully will have it paid off ASAP.

A great strategy & Christmas gift in less than 48 hours. Thanks again and happy investing.

I wanted to follow-up and thank the Bogleheads forum for wonderful advice in December 2010. I re-allocated my assets based on the forum advice --- 70% stock / 30% bond with assets allocated to maximize tax efficiency.

I also paid down my student loans from $100k to $30k to save on the 5.575% fixed 30-year interest rate. I took the advice that this acted as a "negative bond."

Question - Do I need Whole Life Insurance?

I'm now 41 years old, never married, no kids. I have 4 more years on a 10-year term policy for $455 a year. Beneficiary would be my widowed mother and nieces.

I've gotten a quote for a $500,000 whole life legacy 10 pay policy (MassMutual) which would be $17,590 per year for 10 years.

Not sure if I want to tie up this much money but am also thinking ahead to possibly getting married or for tax advantages.

I wanted to follow-up and thank the Bogleheads forum for wonderful advice in December 2010. I re-allocated my assets based on the forum advice --- 70% stock / 30% bond with assets allocated to maximize tax efficiency.

I also paid down my student loans from $100k to $30k to save on the 5.575% fixed 30-year interest rate. I took the advice that this acted as a "negative bond."

Question - Do I need Whole Life Insurance?

I'm now 41 years old, never married, no kids. I have 4 more years on a 10-year term policy for $455 a year. Beneficiary would be my widowed mother and nieces.

I've gotten a quote for a $500,000 whole life legacy 10 pay policy (MassMutual) which would be $17,590 per year for 10 years.

Not sure if I want to tie up this much money but am also thinking ahead to possibly getting married or for tax advantages.

Thanks again.

Is your health excellent (preferred risk rating) or good (good)? You could buy a $1 Million dollar policy for about $1,200 per year for the next 30 years or a $500K 30 year term policy for about $575 per year for the next 30 years, today. At the end of 30 years, you will have spent about 30k or 15k depending on the policy amount/term chosen, protected your life and interests of beneficiaries, and saved over $140K upfront, not too mention the additional savings from having compounded those savings. This all without talking about your other savings/investments and enjoying your life knowing you have the best of both worlds - protection and assets.

New annual Contributions available401(k) = Net around $7000-8000 (Small business 401(k) with no matching available, and I max contributions at 16.5k but get $7000-8000 back each year in excess contributions based on low participation of lower salaried employees vs. highly compensated employees)IRA = $5000 (which I usually convert to a Roth IRA)Taxable new annual contributions = greater than 75k

ING Funds available in 401(k):1. ING Fixed Account

2. Bond ING PIMCO Total Return Portfolio - Service (0.88% expense ratio when I researched in Dec 2010, as with other expenses shown)Pioneer Strategic Income Fund - Class Y Shares

Questions:1. Do I need to reconsider my 70% stock / 30% bond allocation? Should I trend to higher or lower stock/bond ratio?2. What are your thoughts on the Vanguard NJ Long-Term Tax Exempt in my taxable account? Is there a downside? 3. Should I liquidate the etrade account and put into Vanguard Taxable or other account? I donated appreciated stock to my alma mater and created a Fidelity Charitable gift fund earlier this year. I'm considering donating the stock with the $4374 long term gain and selling the stock with the $7000 loss. I have carried over losses of less than $10k from previous years.4. How much cash do I need? Should I have "cash" in a Vanguard fund of some sort?5. I have no kids but hope to get married one-day. I still have 3-years on a $1 million term insurance policy, have maxed out on my own-occupation disability insurance. Do I need to consider trust accounts, estate planning etc? 6. Should I pay off the $3500 loan at 2% interest? It balloons in a few years.

I appreciate your time and effort. I have benefited greatly from the advice on this forum.

Thanks again!

Last edited by bzcti on Wed Jul 18, 2012 10:14 am, edited 1 time in total.

1. Do I need to reconsider my 70% stock / 30% bond allocation? Should I trend to higher or lower stock/bond ratio?

Only YOU can decide on your important stock/bond ratio. This is because only you know YOUR goals, YOUR time-frame, YOUR risk-tolerance, and YOUR complete personal financial situation. Mr. Bogle's "age in bonds" is a good starting point. This Vanguard asset-allocation tool should also be helpful: https://personal.vanguard.com/us/FundsInvQuestionnaire

2. What are your thoughts on the Vanguard NJ Long-Term Tax Exempt in my taxable account? Is there a downside?

Two downsides: 1) A single state fund is more risky than a national fund. For example, in 2008 when stocks were plunging, the NJ fund ALSO declined -3.0%. Meanwhile Total Bond Market gained +5.1%. 2) Long-term bonds will suffer the most when interest rates begin rising. Bonds are for safety. Take your risks in stocks.

3. Should I liquidate the etrade account and put into Vanguard Taxable or other account? I donated appreciated stock to my alma mater and created a Fidelity Charitable gift fund earlier this year. I'm considering donating the stock with the $4374 long term gain and selling the stock with the $7000 loss. I have carried over losses of less than $10k from previous years.

Sounds like a very good idea to me.

4. How much cash do I need? Should I have "cash" in a Vanguard fund of some sort?

I don't know how much cash you need; however, you can easily access your taxable account or credit card etc. when you need cash. With your tax-losses, you can probably withdraw tax-free from your taxable account. I think it is foolish to hold a separate low-interest emergency account that you may never need. Exception: Put your taxable distributions into a relatively small money market account for cash needs and rebalancing.

5. I have no kids but hope to get married one-day. I still have 3-years on a $1 million term insurance policy, have maxed out on my own-occupation disability insurance. Do I need to consider trust accounts, estate planning etc?

Nearly all of us should have a Will, Living Will and Durable Power of Attorney. Our Bogleheads Guide to Retirement Planning has two chapters: Essentials of Estate Planning and Essentials of Estate Planning which will help answer your question.

6. Should I pay off the $3500 loan at 2% interest? It balloons in a few years.

bzcti wrote:I paid off the 90k in student loans at 5.575% interest! I am grateful to the wonderful sage advice. A liberating event.

This is impressive!

Emergency funds (cash)= $50k+

Ordinarily, I would think this is appropriate. However, Taylor's comment makes me reconsider in this case. If you had an emergency, you have plenty of resources to draw from. Even if you had to sell stocks at a loss, it is not going to hurt your eventual outcome. (Exception - if you become disabled, do you have disability insurance? Disregard, I see that is answered later.) If you are itching to invest this money, I think it would be just fine. But if you plan to get a new car in the next year or so, just buy it with this money and have a smaller emergency fund after that. Or if having that much in cash is comforting, keep it.

Debt: A small $3500 student loan @ 2% interest

This is coffee and gas money. Just pay it.

1. Do I need to reconsider my 70% stock / 30% bond allocation? Should I trend to higher or lower stock/bond ratio?

With as much money as you are able to save, you have no need to go more aggressive, so why even consider it? Where you are right now (about age minus 10 in bonds) is quite reasonable. You could also drop to 60/40 (about age in bonds) and still be quite reasonable. Since you can save so much, you could probably drop to 50/50 if you want - because you don't have a need for the higher returns that are usually associated with higher risk.

This means, your AA should depend on your willingness to take risk. That sort of boils down to how much you are willing to lose in a crash. If you would start to freak out with more than a 25% drop in your portfolio, then don't have more than 50% stocks. If you could sleep fine with a 40% drop in your portfolio during a crash, you could have 80% stock. But why take that extra risk when you don't need to?

2. What are your thoughts on the Vanguard NJ Long-Term Tax Exempt in my taxable account? Is there a downside?

2% is not going to help or hurt you in any meaningful way. The general advice is to hold all your bonds in a tax-advantaged account if you have room.

3. Should I liquidate the etrade account and put into Vanguard Taxable or other account? I donated appreciated stock to my alma mater and created a Fidelity Charitable gift fund earlier this year. I'm considering donating the stock with the $4374 long term gain and selling the stock with the $7000 loss. I have carried over losses of less than $10k from previous years.

This would be fine if it suits you. But, if you really like having this account, I don't think it is going to hurt you to keep it. If you are trying to make your e-trade account get smaller or disappear, this seems like a good approach.

4. How much cash do I need? Should I have "cash" in a Vanguard fund of some sort?

What makes you comfortable? I don't think you need any cash in your retirement portfolio (other than accumulating dividends that you will buy more funds with). But if you have just one portfolio that includes retirement, emergency fund, next car, etc., I'd just hold whatever amount of cash feels comfortable.

5. I have no kids but hope to get married one-day. I still have 3-years on a $1 million term insurance policy, have maxed out on my own-occupation disability insurance. Do I need to consider trust accounts, estate planning etc?

Without dependents, you do not need life insurance. Except....sometimes it is good to insure when you are in good health, because later, if you do have dependents, you may not be able to get insurance if you don't already have it.

3. Vanguard NJ Long-Term Tax Exempt Fund - Even though the money is in a taxable account, isn't it essentially tax advantaged because as NJ municipal bonds I am not subject to either 33% federal or 6.97 NJ state tax?

Many thanks bogleheads! For those on Facebook, the student loan debt-free status update has generated 100+ likes.

bzcti wrote:2. The Vanguard calculator tells me to go 100% stocks! I must be rigging the responses.

Those types of questionnaires can be helpful in determining your stock to bond ratio. But obviously, if the questionnaire is telling you one thing and your brain and your gut are telling you something else, it may not be that useful a tool for you.

3. Vanguard NJ Long-Term Tax Exempt Fund - Even though the money is in a taxable account, isn't it essentially tax advantaged because as NJ municipal bonds I am not subject to either 33% federal or 6.97 NJ state tax?

Yes, but that is not the only point. Ordinarily, taxable bonds in a 401k or IRA will make you more money (even after tax) than tax-exempt bonds in your taxable account. That's why holding all your bonds in your tax-advantaged accounts is encouraged. We happen to be in a climate where tax-exempt bonds are doing quite well, so this is a time where the rule of thumb doesn't really apply all that much.

I contribute the maximum to my 401k plan (16.5k). The 401k plan runs a "test" for highly compensated employees versus other participants. We usually fail the test and I receive a check for 8-9k in "excess contributions." I get a 1099 the next year and pay taxes on the distribution.

Questions - Should I contribute less each year to avoid getting a lump sum mid-year or end-of-year? Whatever distribution I get I allocate to the 70/30 balanced portfolio above.

OK, I have an opinion. I don't know how close the plan is to failing the HCE test (or whatever it is called). It may be that if you can get your other HCEs to not put so much in, that way you may still put in $17,000 and the plan passes the test. However, it may be that if you put in $9,000 your colleagues get to put in higher amounts. Who knows?

A few years ago, it was a PITA to get a corrective distribution because you had to go back and amend the previous year's tax return and think about the next year's tax return (since you got not only the money you put in, but also the gains and the gains are taxed in current year). Anyways, I am not using all the technical language for this.

I'd probably just contribute the $17K because out-of-sight, out-of-mind and let it get fixed later. Also I would work on a safe-harbor plan in this regard. Our plan got fixed when our CEO got a corrective distribution the day after he had his accountant file his taxes. He was pretty pissed because it was going to cost him another big fee to his accountant.

Consider the Intermediate Term Tax Exempt Bond fund if you are interested in muni bonds. I would rather have this national fund, pay some tax, with a lot better diversification than a state specific fund.

Regarding the REITs, Mr. Swensen has advised a 20% allocation (which may have been revised to 15%). I am not so sure a 5% allocation has much impact either way.

Quick question - I want to make new investments in my Vanguard mutual funds in tax accounts above. I rebalance every few weeks with new purchases to stay in line with the portfolio listed above (see post July 17, 2012)

Quick question - I want to make new investments in my Vanguard mutual funds in tax accounts above. I rebalance every few weeks with new purchases to stay in line with the portfolio listed above (see post July 17, 2012)

I think you have a nice taxable portfolio. To answer your question, I would not wait - invest now.

I personally would combine the Emerging Stock into Total International. I would also exchange the NJ Long Term Tax Exempt for the Intermediate Term Tax Exempt (better diversification, shorter duration - a little higher tax).

At the end of the day, you have to find the portfolio that works for you.

----------New annual Contributions available:401(k) = Net around $7000-8000 (Small business 401(k) with no matching available, and I max contributions at 17.5k but get $7000-8000 back each year in excess contributions based on low participation of lower salaried employees vs. highly compensated employees)IRA = $5500 (which I convert to a Roth IRA)Taxable new annual contributions = greater than 75k-----------

Questions:1. Do I need to reconsider my 70% stock / 30% bond allocation? Should I trend to higher or lower stock/bond ratio?

2. Before 2013, I could only invest in REITs (7.63%) and TIPs (5.89%) in my Roth IRA. I now have many more options for tax-advantaged investing in my 401k for Bonds, REITs and TIPS. Should I trend to David Swensen's 15% REIT and 15% TIPS?

3. What % should I invest in PIMCO Total Bond Fund vs. Vanguard Total Bond Market?

4. Are I-Bonds considered bonds or cash?

5. I still have a small percentage in the NJ Long-Term Tax Exempt fund (2.38%). Should I now keep or abandon this fund? I've liked the diversity though there is more risk on downside?

I appreciate your time and effort. I have benefited greatly from the advice on this forum.

Thanks again!

Last edited by bzcti on Thu Apr 04, 2013 7:28 pm, edited 1 time in total.

Excuse me for going off topic for a second. I noticed your mortgage. 2.75% 15-Year and 2.625% 10-Year is readily available. 2.75% would save about $2000 a year (Should make back fees in about 18-24 months). Just a thought.

Your questions do not have any specific answers. The main answer is probably "It won't make any significant difference."

bzcti wrote:Questions:1. Do I need to reconsider my 70% stock / 30% bond allocation? Should I trend to higher or lower stock/bond ratio?I don't think so.2. Before 2013, I could only invest in REITs (7.63%) and TIPs (5.89%) in my Roth IRA. I now have many more options for tax-advantaged investing in my 401k for Bonds, REITs and TIPS. Should I trend to David Swensen's 15% REIT and 15% TIPS?Once again, who knows?3. What % should I invest in PIMCO Total Bond Fund vs. Vanguard Total Bond Market?It doesn't matter. There is no way to predict the future and know which one might do worse.4. Are I-Bonds considered bonds or cash? Yes.5. I still have a small percentage in the NJ Long-Term Tax Exempt fund (2.38%). Should I now keep or abandon this fund? I've liked the diversity though there is more risk on downside?It won't matter.

My question may seem odd after all the posts since 2010 and all the changes; but, I ask because personal circumstances and long-term goals do NOT change typically (I emphasize) from extremes - or every year or 3. The IPS is sort of like a map you follow, and may tweak here/there, going from point A --> Z (your goal).

bzcti wrote:Debt: $130k mortgage (15-year 4.25%) No auto loans, no credit card debt. I would work to get rid of debt - eliminate the mortgage.

Tax Filing Status: Single, never married, no kids

Tax Rate: 33% Federal 6.37% NJ StateYou are in a high tax bracket - meaning that you should be able to save significant dollars, and you seem to do that (per below).

Age: 42 (edited 4/4)----------New annual Contributions available:401(k) = Net around $7000-8000 (Small business 401(k) with no matching available, and I max contributions at 17.5k but get $7000-8000 back each year in excess contributions based on low participation of lower salaried employees vs. highly compensated employees)IRA = $5500 (which I convert to a Roth IRA)Taxable new annual contributions = greater than 75k-----------

bzcti wrote:Questions:1. Do I need to reconsider my 70% stock / 30% bond allocation? Should I trend to higher or lower stock/bond ratio?Asset Allocation is personal and your Ability & Need for risk should guide you. This is where the IPS can help. We all take a certain amount of risk for expected (NOT guaranteed) return to help achieve our goals; and whether 70/30 or something different is right for you should be determined by your savings rate, window to retirement, and goal(s).

2. Before 2013, I could only invest in REITs (7.63%) and TIPs (5.89%) in my Roth IRA. I now have many more options for tax-advantaged investing in my 401k for Bonds, REITs and TIPS. Should I trend to David Swensen's 15% REIT and 15% TIPS?Irrelevant (really, this is minutae)

3. What % should I invest in PIMCO Total Bond Fund vs. Vanguard Total Bond Market?It doesn't matter. That said, Bill Gross has a good track record but also has some recent blunders (the risk taken with active management).

4. Are I-Bonds considered bonds or cash? Bonds.

5. I still have a small percentage in the NJ Long-Term Tax Exempt fund (2.38%). Should I now keep or abandon this fund? I've liked the diversity though there is more risk on downside?Irrelevant.

I hope that helps and it doesn't harsh or anything. My main point being to look at the BIG picture and the small stuff doesn't matter.

1. Do I need to reconsider my 70% stock / 30% bond allocation? Should I trend to higher or lower stock/bond ratio?

There are 2 good reasons to reconsider. If you have found the chosen AA does not suit you anymore or if many years have passed since you set it up and the numbers are no longer appropriate for your age/time horizon. The 70/30 is certainly still appropriate for your age. Does it suit your personality? Your willingness to take risk? Or does it make you a little uneasy? I can't see any reason to trend to a higher stock to bond ratio. Since you are saving so much each year, you have little need to take risk, so 60/40 should work out fine for you as well. It just boils down to how you feel about it.

2. What are your thoughts on the Vanguard NJ Long-Term Tax Exempt in my taxable account? Is there a downside?

In the not distant future, you will pretty much have to hold bonds in your taxable account. If you live in NJ, that is an appropriate choice.

3. Should I liquidate the etrade account and put into Vanguard Taxable or other account?

What is the account for? It appears to be a "play with stocks" account. At 6% of your portfolio, that's fine. You can afford to play a little. But if the account worries you, dump it.

4. How much cash do I need? Should I have "cash" in a Vanguard fund of some sort?

I don't see a need for cash in a retirement portfolio. You have an emergency fund - that's plenty of cash. On the other hand, if it would make you feel better to hold a little cash, that will not ruin your portfolio.

5. I have no kids but hope to get married one-day. I still have 3-years on a $1 million term insurance policy, have maxed out on my own-occupation disability insurance. Do I need to consider trust accounts, estate planning etc?

I don't see a need for these things at this time.

6. Should I pay off the $3500 loan at 2% interest? It balloons in a few years.

If you are getting some enjoyment on making a few pennies by holding this low interest loan, it is not hurting anything. But it certainly could be a nuisance and there is no real reason to continue to hold it. Since you really liked paying off the other loan, you might like the feeling of paying off this one too.

I can see a couple of possible improvements to consider.

1) Your mortgage interest rate is not particularly low (although not outrageous). You could see about a refinance or you could simply pay an extra $500 or so each month on the principal.

2) Ask your 401k administrator or custodian if you are allowed to make something called "after-tax employee contributions". This is not the same thing as Roth 401k. Many plans have this option available, but most folks just don't know that it exists. If you can do this, the next question to ask is if you are allowed to make in-service rollovers of that money out to an IRA.

This would be money that is in addition to the $17,500 elective deferrals you are allowed to make (before some is sent back to you), up to a limit of $51k this year. It would be money that you would otherwise send to your taxable account. If you have the option and if you can make rollovers of that money (you cannot rollover your elective deferrals), then you could roll it out to Roth IRA once or twice a year and pay tax only on the earnings that have accrued.

This would get a lot more money into Roth status instead of in your taxable account. It also would not affect the back door contributions to Roth that you are currently doing.

Opps, I see that I copied the wrong set of questions. Let me try this again.

2. Before 2013, I could only invest in REITs (7.63%) and TIPs (5.89%) in my Roth IRA. I now have many more options for tax-advantaged investing in my 401k for Bonds, REITs and TIPS. Should I trend to David Swensen's 15% REIT and 15% TIPS?

I think using the TIPS is fine. (I bonds in taxable accomplishes much the same thing.) But 15% REIT is a lot and it is taking up precious space in your limited tax-advantaged accounts. I would limit REIT to 10% of stocks or 10% of the portfolio at most.

3. What % should I invest in PIMCO Total Bond Fund vs. Vanguard Total Bond Market?

I would use Total Bond Index - that is a big difference in cost.

4. Are I-Bonds considered bonds or cash?

Bonds.

5. I still have a small percentage in the NJ Long-Term Tax Exempt fund (2.38%). Should I now keep or abandon this fund? I've liked the diversity though there is more risk on downside?

Pretty soon, you will have to have more bonds in taxable. This is a good choice.

bzcti wrote:Based on these comments, I am inclined to avoid pursuing the after-tax employee contributions.

Then you are probably not understanding the benefit. What is it that bothers you?

Dear retiredjg - many thanks for your gracious response. The disadvantages listed on the wiki appear concerning. And the potential for taxes as ordinary income on the gains and paperwork are a concern.

Am I mis-reading? Otherwise, it appears almost too good to be true (ie. if they allow in-service rollover on after-tax employee contributions.)

I'm somewhat bewildered by the list in the Wiki. To my knowledge, the people who use this opportunity have not reported those problems.

And the potential for taxes as ordinary income on the gains and paperwork are a concern.

That's why you roll the money out regularly.

If the money were left in the after-tax 401k account for a long time, this would be a valid concern and you would be better investing in a taxable account. Since the money is rolled out before a lot of gains, you get a lot of money into Roth status without paying a lot of tax.

If the tax actually worries you, there are ways to work around that and some people do, but it seems like a lot of trouble to me.

Otherwise, it appears almost too good to be true (ie. if they allow in-service rollover on after-tax employee contributions.)

livesoft's comments would be correct for after-tax contributions that are just left in the 401k. That is why this is not a good option unless you can also regularly do in-service rollovers out to Roth IRA.

retiredjg wrote:livesoft's comments would be correct for after-tax contributions that are just left in the 401k. That is why this is not a good option unless you can also regularly do in-service rollovers out to Roth IRA.

I'm somewhat bewildered by the list in the Wiki. To my knowledge, the people who use this opportunity have not reported those problems.

And the potential for taxes as ordinary income on the gains and paperwork are a concern.

That's why you roll the money out regularly.

If the money were left in the after-tax 401k account for a long time, this would be a valid concern and you would be better investing in a taxable account. Since the money is rolled out before a lot of gains, you get a lot of money into Roth status without paying a lot of tax.

If the tax actually worries you, there are ways to work around that and some people do, but it seems like a lot of trouble to me.

Otherwise, it appears almost too good to be true (ie. if they allow in-service rollover on after-tax employee contributions.)

I'd have to agree, but it's true.

retiredjg,

Not to distract from this great thread...

Thanks so much for bringing up the after-tax 401k contributions/in-service rollover idea. I had not seen this before and think it will work quite well for my situation. I searched and saw that this has come up before; what a great idea! Once again, your ability to explain these kinds of concepts is impressive.

A while back I said to myself "I should pm this guy and ask him to manage my portfolio" but I probably couldn't afford you!

Thanks for the kind words rickmerrill. If you find your plan offers this option and you can do the rollovers regularly, it's a good way to get money into Roth instead of taxable.

There are several methods for getting the money out. Some are easy. Some are not. There are also a few things to realize ahead of time (such as rolling into tIRA and then converting to Roth IRA will cause your other tIRAs to be pro-rated).

So for anyone considering this approach, research is in order and you might want to run your plan by this forum before pulling the trigger. This is true for everything suggested here, but especially this maneuver because it is a little more complex and there are more ways that things could go wrong if you don't plan it out ahead of time.

The website http://www.fairmark.com has a lot of discussion on this subject. Many of the questions there are answered by Alan S. who is also a poster here at Bogleheads. There are also previous threads on this forum.

That Wiki article makes it sound much worse than it is. Basically scare-mongering. If you have this available and can fund it, I would do so (and I do!). Extra money going into Roth rather than taxable is very valuable. Last year, even with MyMegaCorp's limitation on how much you can contribute from each paycheck, I put an extra $6,565.58 into a Roth IRA. That more than doubled my contribution for the year.

This is the response I received from the 401k advisor at my practice. He sent my question to another colleague whose response is also below. Many thanks.

"You posed an interesting question concerning after tax supplemental contributions to the 401k plan which I had not encountered previous so I went to several independent TPA with whom we partner for their response. The best, and most pointed response I received is shown below and his suggestion of a non deductible IRA seems to make good sense, certainly for yourself. Hope this is of help.----------------------------------------------------------------------------------------------------------------------------

After-tax contributions are an option is a plan sponsor chose to do so. They basically come from the old “Thrift Plan” rules that pre-date the 401(k). That said, I haven’t seen anyone put that option in a plan in over 25 years as it’s administratively not worth all of the hassles & costs. In the situation described by that individual, they would do 1-2 distributions per year. While it might sound good, they would be hit with distribution fees of $50 to $100 per distribution so it is a bad financial decision. Beyond that, what he’s trying to accomplish is normally done via setting up a non-deductible IRA and converting it to a Roth IRA at year-end. That method carries no costs and doesn’t add administrative complexity to the plan.